February 22, 2008

The outsourcing industry in India: A view from the MD of NeoIT

Gary Schneider is Managing Director of NeoIT, the US-based consulting firm. Gary heads up the firms operations in India and he has attended a few NASSCOM conferences now. We sat together and had a chat in an Italian restaurant within the Hyatt hotel in Mumbai.

Gary first told me about a couple of things that he missed this year in NASSCOM: “The two things that I have enjoyed in the past has been a close look at the US political landscape and economic view, but that’s absent this time and they also don’t seem to have too many people from the private equity and investor community this time. There was a lot of talk this year about leadership and innovation, all very strategic, whereas last year was very tactical and more about control.”

It’s interesting to hear Gary say this, as most observations on the conference have been very positive. The decrease in US-specific information might be linked to the growth in importance of Europe; certainly Europe is now a bigger market for offshore outsourcing than the US. I think he is right about the investors though, but I didn’t really notice until he said it.

Gary noticed the international flavour of the event this year though: “It is extremely international this year at NASSCOM. China, Nova Scotia, Wales, Malaysia… they are all here. It is reaching a point by accident or design that this conference is now becoming more of an international outsourcing conference, rather than just Indian. Next year will really be interesting because we will be able to see if that trend develops further. There is a very distinct flavour here especially when compared to similar conferences in china or Russia, where they are very much more focused on local business. This is a marketplace beyond just a conference.”

The team from NeoIT were also enthused by the maturity of the supplier community at NASSCOM: “Normally suppliers are selling themselves on their skills or experience at conferences like this, but this year we have found some of them really asking for healthy independent feedback on their offering. And the nice thing is that they seem to have accepted and listened to many of our views as market consultants.” It’s interesting to hear that companies are being introspective and trying to get feedback from within the conference.

I asked Gary about some of the market concerns of a potential economic slowdown in the US and he gave me some views: “People are not sure how the general slowdown might affect this industry. We know from history that the US can usually speed up again after a slowdown faster than Europe. I think the trouble on the Indian stock market won’t last for long though, they will bounce back.” I wanted to know if he felt the issues in India on the stock market and the wider economic issues are related and he told me: “The concerns about the slowdown in the US and the worries on the Indian stock market are separate but also interrelated. People are talking about what will happen with the entire industry, but at the same time, the market is maturing. There are more deals coming through, but of a smaller size, so margins are likely to be smaller, but companies are gearing up for what is to come. It is a sign of their maturity that these companies are looking a year ahead and planning.”

Gary added a final extremely positive note about the outsourcing industry in India though: “We have moved from staff augmentation to managed services, so companies are held to a higher level of accountability. It’s likely that as companies move more towards this business outcome pricing and gainsharing rather than cost plus measures – such as staff augmentation – then margins can be improved.”

So the industry is maturing in India and, if Gary is right, then that maturity will come with the answer to some of the short-term fears bubbling in the market at present.